In Depth: Why Apple shouldn’t be worried about the first ever iPhone sales decline

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on January 27, 2016

What we learned: records and iPhone

Tim Cook gave us a cheeky call yesterday. Okay, technically we called him, along with probably hundreds of other journalists and analysts, but we did get to hear from the Apple CEO about the state of the Cupertino firm and its finances.

Apple’s first call of the 2016 financial year generated a lot of interest, as the firm was expected to reveal that it wasn’t seeing the same big iPhone sales jump as it had previously – and that indeed was confirmed to be the case, sparking talk of issues for the world’s biggest brand.

While iPhone was a main focus, Cook and co revealed more than just how well their handsets were selling. Here’s everything we’ve learned from the call.

1. Apple’s still making a lot of money. A. Lot.

While the headlines might scream the iPhone is in trouble, the fact of the matter is Apple is still raking in money at an incredible rate of knots.

In the December quarter the Cupertino firm managed to pull in a whopping US$75.9 billion. It won’t be running out of money any time soon.

If iPhone is in a little spot of bother, Apple certainly has the resources to do something about it. We’re hoping the first signs of this will be the iPhone 7 launch later this year, when we expect Apple to give its best-selling line of products one of the biggest overhauls to date.

The iPhone 4 was a huge deal. Apple changed so much, added a host of new features and made it feel like a totally new phone. To a lesser extent it did a similar thing with the iPhone 6, but consumers are still waiting for another change of the same order of magnitude as the 4.

What it needs, and what we want, is another iPhone moment like we saw in 2010. Current iPhone 7 rumors suggest the removal of the headphone jack, which would certainly mix things up, but we don’t think that’s likely, as the market isn’t ready to make that leap yet.

Instead we’re expecting a re-imagined design, fresh functionality with iOS 10, and major improvements to the screen, camera and performance. But it can’t just be lip service to the industry – it needs to be genuinely revolutionary.

Gotta spend money to make money, right Tim?

2. And it’s still breaking records

Cook said “we’re reporting Apple’s strongest financial results ever. We generated all-time record quarterly revenue of US$75.9 billion in the December quarter in line with our expectations and up 2% over last year’s blockbuster results”.

Tim Cook mentioned no fewer than three new records for the December quarter, with the US$75.9 billion of revenue joined by an all-time high quarterly net income of US$18.4 billion and 74.8 million iPhone unit sales.

To put the iPhone sales into some perspective, that works out at an average of 34,000 iPhones sold per hour, 24 hours a day, seven days a week, for 13 straight weeks. That’s almost 567 iPhones sold per minute, or nine every second.

3. But the iPhone’s growth is slowing

Record iPhone sales doesn’t sound like a negative, but reading reports of the Apple earnings call suggests all is not well over in Cupertino.

Yes iPhone sales are up, again, but it’s the slender increase over last year’s performance – results which Cook dubbed “blockbuster” – which has got analyst knickers in a twist.

It’s the slowest sales growth since the iPhone first came out in 2007, with revenue up a meager 1% year on year.

One explanation is the explosion of the mid-tier, as Asian brands flood the middle of the market with handsets that are encroaching on flagships, but at more affordable prices. It’s an area of the market over which Apple has very little influence, and it’s possibly beginning to feel the strain.

Sales are still up though, and there will be many mobile manufacturers looking on enviously at the fact that Apple is yet to see a decline. ‘Yet’ being the key word there, though.

4. It’s going to get worse before it gets better

Something which is alarming analysts further is Tim Cook’s warning that he expects the iPhone to witness its first ever decline in the upcoming quarter, with sales forecasted to come up short of the 74.8 million units Apple has just shipped.

Is this the first sign the world is getting fed up with Apple’s high prices and incremental upgrades, or is it simply that the iPhone 6S and 6S Plus aren’t the most exciting iterations, and people are holding out for the iPhone 7?

5. But iPhone’s a long way from dead

In short, iPhone sales are beginning to plateau – and at some point they had to. You can’t sustain such meteoric growth forever, and Apple’s smartphone may be hitting critical mass in the market.

Most people who want an iPhone now have one, as the firm has spread availability into more markets – including China and India – so perhaps Apple has a larger majority of iPhone users already wrapped up.

Plus, its current flagship handsets (the 6S and 6S Plus) are stop-gap iterations between the iPhone 6 and the iPhone 7, where Apple pushes most of its innovation.

It’s probably safe to assume the iPhone 7 will be vastly more popular than the S variants, which could see Apple’s numbers jump back up this time next year.

What we learned: iPad, Watch, VR and more

6. iPad Pro ‘well received’, but iPad on the slide

The iPad Pro broke cover towards the end of 2015, and it’s no surprise that Cook claims it’s been “extremely well received by customers”.

That may be so, but that hasn’t managed to stop the iPad’s decline, with tablet sales down 25% year on year.

It has been around a year and a half since Apple launched its last flagship slate – the iPad Air 2 – and there are rumors that the iPad Air 3 could make an appearance in the coming months.

While the Air 3 is never going to see iPhone-like volumes of sales, it could at least go someway towards improving the fortunes of the firm’s tablet department.

7. Apple ashamed of Apple Watch?

Apple breaks down the number of iPhone, iPad and Mac units it sells in each financial report, but products such as iPod, Apple TV, accessories and Apple Watch are lumped in together under ‘others’, with no unit shipment figure attached, only revenue.

This has raised suspicions in the industry that perhaps Apple is a little embarrassed about its Apple Watch sales – perhaps they’re not as impressive as the rose gold finish.

Thing is, the revenue for ‘others’ in the December quarter is up a huge 62%, and Cook said during the call that his firm had seen a “new quarterly record for Apple Watch sales, with especially strong sales in the month of December”.

A new record is great, but with Apple’s reluctance to put an actual figure on the number of Watch units it’s shipping, it does make you wonder if the bar was set pretty low to start with.

Apple’s doing something, but is it thanks to genuinely strong Apple Watch sales, or could another range – such as the Beats line of products – be boosting those percentages instead?

8. Tim Cook thinks VR is the real deal

Cook fielded questions at the end of this call, and when quizzed about his thoughts on virtual reality (VR) he was surprisingly open about his feelings.

“I don’t think [VR] is niche,” he said. “It’s really cool and has interesting applications.” Okay, so it’s not exactly a lengthy monologue, but it’s yet another hint that Apple could well be pursuing the VR market.

A number of activities over recent months, including patent applications and VR-focused hires, has thrown Apple into the mix of companies apparently working on the immersive technology.

Could 2016 be the year Apple makes a play in the VR World? We’re keeping our fingers crossed.

9. Apple’s got a strong service game

Apple doesn’t just make money selling hardware, and its services business has witnessed a 26% increase in revenue year on year thanks to the rapid growth of its install base.

There are now over one billion active Apple devices (iPhone, iPad, Mac, iPod touch, Apple TV, and Apple Watch devices active in the past 90 days), with users spending large amounts of time on them.

Those users are purchasing lots of apps, content and other services, which means Apple is getting paid again and again and again.

10. An Apple Pay payday

In the second half of 2015 Apple saw significant acceleration in Apple Pay usage, with a growth rate 10 times higher than in the first half of the year. Given that Apple takes a tiny fee from every transaction, this is yet another means of bringing in the cash (although it’s not clear whether it’s actually a profit or not just yet).

This growth was helped by the launch of the service in Australia and Canada, and Apple boasts that Pay is now accepted at over five million contactless-ready terminals in countries where it’s currently available.

Those figures are only going to increase through 2016, as Apple rolls out Pay to China, Hong Kong, Spain and Singapore.

In short, Apple Pay is growing fast, and the likes of Android Pay and Samsung Pay have a lot of ground to make up.

Of course Apple are making a lot of money. They rip their consumers off, file ridiculous lawsuits and leech off other OEM's ideas and innovations. They have a following of blinkered individuals who worship them and will throw money at them without questioning what they are actually buying. They avoid paying tax and pay a pittance to workers in under privileged countries. Despicable company.

Why don't Apple stop putting all their attention on iPhones and start considering making dish washers, refrigerators, ovens, stoves, and microwaves that are even more innovative than Samsung or LG. I would love to redo my kitchen with Apple appliances. This focus on releasing one new iPhone each year is extremely boring and will eventually bite Apple in the ass.